Signs of rebound

OER presents its 18th annual review of Oman’s top 20 leading listed companies for the year 2017

As stated in the World Bank Global Economic Prospects report, a broad-based cyclical global recovery is underway, aided by a rebound in investment and trade, against the backdrop of benign financing conditions, generally accommodative policies, improved confidence, and the dissipating impact of the earlier commodity price collapse. Global growth is expected to be sustained over the next couple of years—and even accelerates somewhat in emerging markets and developing economies (EMDEs) thanks to a rebound in commodity exporters. Global GDP growth is estimated to have picked up from 2.4 per cent in 2016 to 3 per cent in 2017, above the June forecast of 2.7 per cent. Global growth is projected to edge up to 3.1 per cent in 2018, as the cyclical momentum continues, and then slightly moderate to an average of 3 per cent in 2019-20.

The report goes on to say that the growth in advanced economies gained significant momentum in 2017. The recovery was markedly stronger than expected in the Euro area and, to a lesser degree, in the US and Japan. As economic slack diminishes and monetary policy becomes less accommodative, growth is expected to gradually moderate toward low potential growth rates in 2018-20. Growth in China continues to be resilient, with drivers of activity shifting away from state-led investment.

The year 2017 saw an increase in oil prices. The year closed with an average oil price of $ 53 per barrel compared with an average price of $41 in 2016. According to KPMG Oman Budget 2018 insights, actual oil and gas revenues for 2017 are up by 11 per cent as compared to the budgeted figures for 2017. This is on account of increase in realised oil price to $50/bbl as compared to the budgeted price of $45/bbl. Non-oil and gas revenues have declined by 6 per cent as compared to the budget due to lower tax and non-tax revenues including investment income.

Oman’s total crude oil and condensate output in December 2017 reached 29.97 million barrels, recording a daily average production of 966,952 barrels.

The US stocks were on a first-class ride into record territory in 2017. But they weren’t alone. The value of public companies on global stock markets grew by $12.4tn in 2017, according to S&P Dow Jones Indices, which included dividends in its calculation. A number of markets even outperformed the US. Among the developed markets, the US Dow Jones industrial average shot up by 25 per cent, the S&P 500 surged by 19 per cent and the tech-heavy Nasdaq index outshined them all with a stunning 28 per cent gain. Some European markets fared similar gains. In local currency terms, Germany returned 13 per cent, France 10 per cent, Spain 8 per cent and UK up 8 per cent percent. Japan was up 19 per cent. Emerging markets were mixed, with India up 27 per cent, China up 6 per cent and Brazil up 28 per cent. WTI oil price during the year ranged from $55 per barrel to around $65 and closing the year at about $58. Gold increased from $ 1,132 at the beginning of the year to $ 1,294 per ounce by the end of 2017.

For the year 2017, the MSM Index decreased by 11.8 per cent. This is compared to an increase of 7 per cent in the previous year. The MSM sharia index was the largest loser declining 17.88 per cent, followed by the services sector declining by 13.58 per cent. The industrial sector declined by 7.75 per cent and the financial sector declined by 2.58 per cent for the year. A total of 4.276 billion shares got traded during the year amounting to an aggregate turnover of RO993mn, which was up by about 3.53 per cent compared to 2016. The MSM 30 Index started the year at 5,783 closing the year at 5,099 points, with a negative return of 11.8 per cent for the year. The MSM ranked fifth among the stock markets in the GCC. Kuwait PI was the best performing showing a gain of 11.5 per cent followed by Bahrain in the second position with a return of 9.1 per cent. Saudi followed in third place with a return of 0.2 per cent, UAE ADX was fourth with a negative return of 3.3 per cent, and Qatar being the last at 18.3 per cent.

During the year 2017, the revenues of Oman’s 20 largest companies showed an increase of RO578mn. Total revenues for the OER Top20 companies increased by 12.46 per cent to RO5,218mn. Corporate performance for the year 2017, overall, also increased. The profits for the year 2017 decreased again this year by 10.74 per cent to RO538mn from RO603mn in 2016. The total market cap of the OER Top20 companies on December 31, 2017 was RO5,425mn, which increased marginally compared to 2016. On March 31, 2018, the market cap of the Top20 decreased further to RO4,747mn. The OER Top20 companies represent 30 per cent of the total market cap of the MSM of RO17,950mn at the end of 2017. The average P/E ratio of the OER Top20 based on the profits of the year 2016 and the share price on March 32, 2017 is 8.83 times earnings.

Who is out and who is in

Two companies that have returned to the OER Top20 this year are Oman Refreshment Company and Al Jazeera Steel Products at the expense of Al Hasan Engineering and Raysut Cement.

The ranking of Oman’s 20 largest companies in order of revenue produces a list, which includes eight companies from the services sector, seven from the financial sector, and five from the industrial sector.

The top five by revenue

Rank

Company

Revenue RO
mn

Growth per cent from 2016

1

Oman Telecommunications Co

752

44.74

2

Bank Muscat

581

8.29

3

Oman Oil Marketing Company

515

20.81

4

Shell Oman Marketing Co.

465

18.46

5

Al Maha Petroleum Products

430

7.04

Omantel has regained its position as the number one company in Oman in terms of turnover. Omantel has shown a growth in revenue of 44.74 per cent compared to 2016. The group revenue of RO752mn include RO220mn from the acquired business of Zain Group. Bank Muscat has moved to the number two position. Oman Oil has retained the third place. Shell Oman has moved up from fifth place to the fourth position and Al Maha has slipped down to number five.

Chairman of Omantel, Eng Sultan Hamdoon Al Harthi in his report to the shareholders states that the parent company revenue recorded a growth of 2.4 per cent. Parent company costs also increased by 12.4 per cent to RO435.8mn. Al Harthy explains that the increase is mainly due to the change in royalty fees from 7 per cent to 12 per cent and depreciation. The group achieved a net profit after tax of RO106.8mn, compared to RO115.8mn in 2016. The parent company however achieved a net profit of RO70.6mn during 2017, a reduction of 40 per cent from 2016. This impact was due to the increase in royalty and the corporate tax.

Al Harthy adds that the total subscriber base has recorded a growth of 4.5 per cent. The total number of subscribers has reached 3.5 million compared to 3.4 million in 2016. Al Harthy says that Omantel has expanded its operational footprint through an international acquisition of a strategic stake in the Zain Group. Omantel acquired 21.9 per cent for a total consideration of RO845mn.

Al Harthy states that the introduction of several fundamental regulatory changes in 2018 will have a substantial impact on the Omani telecom market in 2018. First of all, the new access and interconnect regulation in its current form, will inevitably lead to increased pressure on overall market value and profitability. Secondly, the award of a third mobile license, even though the conditions and timeline are not clear at this stage, will substantially shift the competitive forces in the market. On a positive note, the current stabilisation of the oil price and economic environment will likely result in a positive market growth in the medium and long term.

Al Harthy is confident that the execution of “Omantel 3.0” strategy remains the essential tool for Omantel to defend their position in the market and deal with the changing market dynamics. The company focuses on maximising the share of wallet and value for customer, through excelling in customer experience as well as expanding beyond the core services such as ICT solutions to assure further growth. Omantel’s ‘Carrier of Carriers’ strategy as part of wholesale proposition in the region enables them also to provide the best connectivity to international players. Moreover, the recent acquisition of a stake in Zain will enable Omantel to diversify its revenue sources and contribute to the creation of an added value to the shareholders of both companies, and will provide opportunities for integration between the two companies as well as to find a strong platform to compete more effectively in the market and overcome the risks of being in a single market.

Top five by profit

Rank

Company

Profit RO mn

Growth per cent from 2016

1

Bank Muscat

177

0.15

2

Omantel

107

(7.78)

3

Bank Dhofar

48

0.01

4

National Bank of Oman

44

(21.07)

5

OMINVEST

34

(10.52)

Four banking and financial companies and one telecom company are the five most profitable companies of 2017. Bank Muscat retains the number one position as the most profitable company in 2017 followed by Omantel retaining the number two spot. Bank Dhofar has jumped one place to number three position from being number four last year. NBO has slipped one place to the number four slot. Ominvest has moved into the number five position at the expense of Ooreedo.

Chairman of Bank Muscat, Khalid bin Mustahail Al Mashani states in his year-end report to the shareholders that the key business lines of the bank maintained performance momentum during the year, despite the challenges. The bank marked a milestone of 35 years of leadership as the beacon of banking excellence in Oman. The achievements contributing to the country’s growth and development started from humble beginnings with one branch in 1982 to the largest network of branches and electronic channels in Oman as well as branches in Saudi Arabia, Kuwait and representative offices in Dubai (UAE), Iran and Singapore. The bank posted a net profit of RO76.82mn for the period compared to RO176.56mn reported during the same period in 2016, an increase of 0.1 per cent.

Mashani adds that the basic earnings per share was RO0.064 in 2017 and 2016. The bank’s capital adequacy ratio stood at 18.45 per cent as on 31 December 2017 after appropriation for proposed dividend for the year 2017 against the minimum required level of 13.65 per cent as per Basel III regulations issued by the Central Bank of Oman.

Mashani goes on to say that the board of directors has proposed a dividend of 35 per cent, 30 per cent of paid-up share capital in the form of cash and 5 per cent in the form of bonus shares. Mashani adds that aimed at enhancing the capital base for supporting business growth and improving return on equity, the bank successfully closed an additional equity tier (AET) 1 capital transaction amounting to RO130mn on a private placement basis, raising the capital adequacy ratio of the bank by 1.4 per cent.

Following 35 years of successful growth, Mashani is confident that the Sultanate’s flagship financial institution is poised to further consolidate its leading position.

Top five by growth of profit

Rank

Company

Growth per cent from 2016

1

Bank Sohar

32.54

2

Oman Flour Mills Co

14.79

3

HSBC Bank Oman

13.12

4

Oman Refreshment Co

4.79

5

Bank Muscat

0.15

Bank Sohar, a newcomer to this list, has shown a growth of profit of 32.54 per cent thus attaining the number one position in this category. Oman Flour Mills has slipped to the number two slot after being number one in 2016. HSBC has also moved down to number three. Oman Refreshment and Bank Muscat, also new comers to this list, are at four and five respectively. SMN Power who was at number three last year, Shell at number four and Ooredoo at number five are eliminated this year.

Chairman of Bank Sohar, Mohammed Mahfoudh Saad Al-Ardhi in his report to the shareholders stated that the bank recorded a net profit of RO25.331mn and the board of directors recommended a cash dividend of 5 per cent for the year, which corresponds to 5 baizas per share, and bonus shares of 10 per cent, i.e. 10 shares for every 100 shares held.

Al-Ardhi adds that the fourth quarter signaled the onset of a fresh wave of strategies to build and consolidate the bank’s burgeoning online portfolio. This is one area of service potential the bank is keen to optimise in its constant endeavor to improve customer relations. It maintained a steady stream of engagement with clients through online contests on all its social media platforms. A growing online presence for the bank has helped it cultivate long-term relationships with customers who make up the bedrock of its foundation.

In the face of ever-increasing competition and weakened market conditions due to lower oil prices and tight liquidity in the market, Al-Ardhi cautions that it will be more challenging to drive profitability and continued growth. However, he confirms that the bank is ready to face this challenge with dedication and maximum effort to grasp opportunities, derive maximum benefits and achieve efficiency in every field of operation.

Top five highest capitalised

Rank

Company

Shareholders Equity OR mn

1

Bank Muscat

1,688

2

Omantel

568

3

Bank Dhofar

471

4

National Bank of Oman

431

5

HSBC Bank Oman

323

Four of the top five companies that have the highest amount of equity employed are banks. All the companies in this category remain the same as 2016. The only change is that Bank Dhofar has moved up one place to the number three spot and NBO has moved down one place to number four.

Eng Abdul Hafidh Salim Rajab Al Aujaili, chairman of Bank Dhofar in his report to the shareholders has stated that the net profit for the year 2017 achieved by the bank is RO47.63mn against RO47.62mn in 2016, showing a marginal growth of 0.02 per cent year on year. Al Aujaili adds that amidst the challenging economic and financial environment, the bank continued to grow in all key areas in the year 2017. The net loans, advances and financing to customers reached RO3.25bn, showing a significant growth of 8.7 per cent. To supplement the loan growth, customer deposits mobilised by the bank achieved a growth of 6.2 per cent to reach RO3.07bn at the end of 2017. Total assets reached RO4.25bn in December 2017 as compared to RO3.95bn at end of 2016, a growth of 7.6 per cent.

Al Aujaili adds that during 2017, in line with the planned on-going capital augmentation programme, to continually strengthen its capital base, the bank successfully raised capital in the form of a rights issue of its ordinary shares by RO40mn which forms part of the bank’s core equity tier-1 capital (CET1) and a tier-2 sub-ordinated loan of RO35mn.

Al-Aujaili informs that the board of directors have proposed a cash dividend of 12 per cent (2016: 13.5 per cent) for the year ended December 31, 2017 amounting to RO27.09mn (2016: RO25.64mn) and a bonus share issue of 8 per cent (2016: 7.5 per cent) amounting to 180,628,618 shares (2016: 142,440,105 shares) of RO0.100 each subject to regulatory and shareholders’ approvals.

Top five by market capitalisation

Rank

Company

Market Capitalisation on 31 March 2018 RO mn

1

Bank Muscat SAOG

992

2

Oman Telecommunications Co. SAOG

684

3

Bank Dhofar SAOG

447

4

Oman Qatari Telecom (OOREDOO)

327

5

National Bank of Oman SAOG

283

This year, three of the top five companies that have the highest market capitalisation on the MSM are banks. Bank Muscat has moved up to the number one position and Omantel has slipped to the number two position. Bank Dhofar and Ooredoo maintain their number three and four respectively. NBO is the new comer in the number five spot at the expense of Ominvest.

Chairman of Ooredoo Oman, Sayyed Amjad Mohamed Al Busaidi states that the past year was another show of strength, with Ooredoo continuing to show growth in what was a year of unpredictability. Through perseverance and consolidation of investments of previous years, the company saw another strong financial performance.

Al Busaidi adds that 2017 was a year in which the company focused on its commitment to investing in the digital future of both telecommunications and the country, striving to enrich the digital lives of all its customers. Ooredoo maintained its commitment to giving customers the ultimate way to ‘enjoy the internet’, with the extension of their superfast fiber coverage. With speeds of up to 1 Gbps and unlimited data, the rollout started with over 1,500 homes being connected in Muscat, followed by rapid expansion across Muscat and beyond.

Perhaps the most significant of the company’s milestonesmwas the rollout of the all-new Ooredoo Oman app. Redefining the way to deal with customers, the app has a constantly expanding range of services, to give customers control at their fingertips. Since its launch in January, the app has seen over 500,000 downloads, all with a high utilisation level of the wide range of services it offers.

Revenues for the year 2017 grew by 1.3 per cent to RO273.6mn, compared with RO270.0mn in 2016. EBITDA for the year stood at RO151.0mn, compared to RO148.3mn for the year 2016. Net profit for 2017 was RO31.0mn compared with RO46.3mn in 2016. Net profit for 2017 is impacted by increase in royalty fee from 7 per cent to 12 per cent, increase in income tax rate from 12 per cent to 15 per cent as well as higher depreciation cost due to investment in network modernisation. The total number of customers grew by 4.2 per cent, in 2017 from 2,946,660 to 3,071,644.

Top five by returns on equity

Rank

Company

Profit as per cent of equity

1

Shell Oman Marketing

27.68

2

Oman Refreshment Co. SAOG

21.51

3

OMINVEST

20.50

4

Oman Flour Mills SAOG

19.01

5

Oman Telecommunications Co. SAOG

18.80

Of the top five companies with the best returns on equity for the year 2017, two are from the services sector, one from financial and two from the Industrial sector. Shell maintains its first position from 2016. Oman Refreshment in a new entrant in the number two spot and Ominvest another new entrant in the number three place. Oman Flour has moved up to four from being five in 2016 and Omantel has slipped to the number five spot from being three last year.

Shabib Mohamed Al Darmaki, vice chairman of Shell in his report to the shareholders states that the increase in fuel prices throughout the year and the overall economic sentiment have dampened fuel demand across the industry and has put upward pressure on operating costs. Despite these headwinds, the Company’s financial results remain robust which underscores the strong performance and resilience of the underlying core business.

Al Darmaki adds that for the year ended 2017, revenues were RO465.5mn, 18.5 per cent higher than 2016, mainly due to higher fuel pricing throughout the year. The 2017 net profit was RO12.90mn compared to RO16.02mn in 2016, with basic earnings per share (EPS) 19.5 per cent lower than 2016. Net cash generated from operating activities was RO15.0mn, 37.5 per cent lower than 2016. This was mainly due to lower net income and adverse movements in working capital.

Al Darmaki explains that the board is proposing that the dividend for 2017 be paid at 85 baisa per share (2016: 106 baisa per share) for distribution in April 2018. With regard to the outlook for 2018, Al-Darmaki states that the fuel marketing business normally follows the economic trend of the country and the company therefore expects that given the higher fuel prices and the fall in the crude oil prices, it will continue to be a year of challenging market circumstances.

Top five by earnings per share growth

Rank

Company

Earnings per share growth per cent

1

Bank Sohar

32.51

2

HSBC Bank Oman

25.00

3

Oman Flour Mills Company

14.81

4

Oman Refreshment Co

04.85

5

Renaissance Services

03.85

Three of the top five earnings per share growth companies are newcomers in this list. Bank Sohar comes straight into the number one position while HSBC remains at number two as last year. Oman Flour comes down to number three from being number one in 2017. Oman Refreshment at number four and Renaissance at number five are new comers to this list in 2017.

Sir Sherard Cowper-Coles, chairman of HSBC in his report to the shareholders states that the bank made good progress in 2017, and its businesses performed well in challenging conditions. The bank’s strong capital and prudent risk appetite enabled the bank to capture market share in strategic product areas.

Cowper-Coles explains that the bank’s performance shows a 13.0 per cent increase in net profit for the year ended December 31, 2017 to RO19.1mn compared with RO16.9mn for the year ended December 31, 2016. Profit grew owing to an increase in net operating income, lower loan impairment charges and improved tax expenses. The bank’s capital adequacy ratio stood at 16.9 per cent for the year, compared with 18.7 per cent as at December 31, 2016, with the change largely due to the impact of regulatory changes in relation to the treatment of investments in certain overseas government securities.

Cowper-Cole says that the board of directors proposes a total cash dividend of RO11.4mn, with a dividend pay-out ratio of 59.6 per cent. This represents a 14 per cent increase in the payment compared with 2016.

In 2018, Cowper-Coles states, the environment for banking remains challenging, but the board are confident that HSBC Bank Oman is well positioned, with a strong and liquid capital base and a prudent risk appetite, to face the challenges that lie ahead. The bank will continue to focus on their strategic objectives and on delivering high-quality experience to its customers.

Top five share price growth

Rank

Company

Share price growth per cent

1

Oman Flour Mills

33.71

2

Renaissance Services

23.75

3

Al Jazeera Steel Products Co.

13.82

4

HSBC Bank Oman

06.67

Out of the 20 companies only four companies showed a share price growth during the year 2017. Three of these companies- Oman Flour Mills, Renaissance and HSBC-are the same as last year. Al Jazeera is a new comer in the list. Raysut Cement and Galfar which were part of the list last year are out.

Shaikh Salah Hilal Al Maawali, chairman of Oman Flour Mills in his report to the shareholder states that the performance of the company in 2017 has been good resulting in record profit. The parent company has achieved a net profit after tax of RO12.74mn, compared to RO10.91mn in 2016. The net profit of the group is RO14.701mn as compared to RO12.778mn in the previous year.

Al Maawali adds that based on the results achieved, the board of directors is pleased to recommend the distribution of 50 per cent cash dividends on the paid capital to shareholders.

Commenting on the company‘s future diversification plans, Al Maawali explains that Modern Poultry Farm expansion is ongoing and production of eggs from some new houses commenced from April 2016. At full expansion that is expected to be completed by 2018, the increase in capacity will be about 50 per cent of the pre-expansion production. The company is also setting up a new 500 Mt flour mill in Sohar, adjacent to the silos proposed to be constructed by the government as per their strategic food reserve programme. The mill is expected to be ready by mid of year 2018.

The top five dividend yields

Rank

Company

Dividend yield per cent

1

Al Jazeera Steel Products

8.57

2

OOREDOO

7.98

3

Bank Muscat

7.61

4

National Bank of Oman

7.50

5

Al Maha Petroleum

6.50

Al Jazeera Steel was the best dividend yielding company in 2017. Ooredoo which was number four in 2016 is second this year. Bank Muscat at number three is a new comer. NBO has slipped to number four from being number two last year. Al Maha remains at the number five position same as 2016.

Chairman of Al Jazeera Steel, Sulaiman Mohammed Shaheen Al-Rubaie in his report to the shareholders states that 2017 was a good year as the company achieved its highest ever volume dispatches of 400,895 tonnes, an increase of 19 per cent year on year, with net profits touching RO4.857mn, a 6 per cent increase year on year. This was achieved in a challenging year, where the company started at relatively high level of input prices followed by periods of volatility – thanks to the effect of the future steel market in China.

Al Rubaie adds that the board of directors is pleased to recommend a cash dividend of 24 per cent, amounting to Bz 24 for the year 2017 for every share held.

While the market will improve slightly in 2018, Al Rubaie explains, fundamental challenges will remain, and therefore the company will continue to focus on improving mill utilisations, maintaining tight cost controls and increasing sustainable margins through diversifications both in market segments as well geographies.

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